After US President Donald Trump blamed China for the Covid-19 outbreak, which has killed a quarter-million people worldwide, China’s global trade ties are worsening as companies and governments move resources out of the world’s second-largest economy to diversify supply chains. India is seeking to lure U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China. The government in April reached out to more than 1,000 companies in the U.S. and through overseas missions to offer incentives for manufacturers seeking to move out of China.
This surge in investment would help shore up an economy battered by an eight-week nationwide lockdown to control the Covid-19 outbreak, and help India make up ground hitting a target to grow its manufacturing sector to 25% of GDP by 2022 from 15%. The need to create employment is now even more urgent after the pandemic left 122 million people jobless. It could also present India with a chance to finally push through long-stalled reforms on land, labor and taxes that have hindered investment for years.
The Prime Minister held a meeting on April 30 to discuss steps to fast-track strategies for wooing investors. Andhra Pradesh, a southern Indian state, is in touch with several companies from Japan, the U.S. and South Korea.
“We have the advantage of coastline and ready-made industrial parks with necessary clearance,” Rajat Bhargava, special chief secretary of the state’s revenue department, said by phone. “We are focusing on certain sectors like IT and related manufacturing, food processing, and chemicals and have been holding video conferences with investors.” The northern state of Uttar Pradesh is also developing an online system for land allotment for all industrial and commercial purposes and is in talks with global companies for attracting investments in sectors such as defense and aerospace.
The officials have told these companies that India is more economical in terms of securing land and skilled labour. They have also offered an assurance that India will consider specific requests on changes to labor laws, which have proved a major stumbling block for companies, and said the government is considering a request from e-commerce companies to postpone a tax on digital transactions introduced in this year’s budget. The trade ministry was offered detailed feedback by US companies on the changes needed in the trade laws to make it more favourable for the investing companies. India expects to win over U.S. companies involved in healthcare products and devices, and is in talks with Medtronic Plc and Abbott Laboratories on relocating their units to the country. They’re based out of financial center Mumbai and already work with large Indian hospital groups.
“India is a bigger market than Vietnam or Cambodia so it should be a bigger draw for investors looking to move operations out of China,” said Ajay Sahai, director general and chief executive officer of the Federation of Indian Exporters. “But apart from ensuring land, water and sewerage, the most important change India needs to make is to give a clear guarantee that the government will not introduce retrospective tax amendments.”
“There’s abundant capital in the U.S. that’s looking for geographies outside, and we can see India responding,” said Mukesh Aghi, president of the U.S.-India Strategic and Partnership Forum, a Washington-based group that advocates for policies that further business ties between the countries. “Companies realize that while large supply chains in China may have been economical, there’s no point in keeping all your eggs in one basket.”
India is developing a land pool nearly double the size of Luxembourg to lure businesses moving out of China. A total area of 461,589 hectares has been identified across the country for the purpose.That includes 115,131 hectares of existing industrial land in states such as Gujarat, Maharashtra, Tamil Nadu and Andhra Pradesh. Luxembourg is spread across 243,000 hectares, according to the World Bank. The government has hand-picked 10 sectors — electrical, pharmaceuticals, medical devices, electronics, heavy engineering, solar equipment, food processing, chemicals and textiles — as focus areas for promoting manufacturing.
It has asked embassies abroad to identify companies scouting for options. Invest India, the government’s investment agency, has received inquiries mainly from Japan, the U.S., South Korea and China, expressing interest in relocating to Asia's third-largest economy. The four countries are among India’s top 12 trading partners, accounting for total bilateral trade of $179.27 billion. The foreign direct investments by the four nations between April 2000 and December 2019 stands at over $68 billion, government data shows.